Mortgages for people who are self-employed work slightly differently to those that are acquired by people in regular employment. However, providing that you can prove your financial stability, you should have no issue in getting a mortgage as a self-employed borrower.
The following guide provides an overview of the process of applying for a mortgage if you are for a self-employed.
Am I Considered Self-Employed by Mortgage Providers?
If you generate the majority of your income through the ownership of a business, as a sole trader or member of a partnership, then you are likely to be considered self-employed by mortgage lenders.
You will also be regarded as self-employed if the majority of your income comes through the ownership of property,
In the case of you having regular employment with a single employer, and also income from any of the above, you will be considered as either a regular or self-employed borrower depending on which provides the higher share of your income.
Does Being Self-Employed Disqualify Me from Taking a Mortgage on a Home?
Provided that you can prove that you have been trading for at least a year, and can offer accounts produced by an accountant then some mortgage lenders will be able to help. However, the more of a track record you have, say 2 or 3 years of accounts and tax returns then the more lenders you will have available to choose from.
Being self-employed shouldn’t disqualify you from taking a mortgage from a residential mortgage provider. However, you may be subject to further checks, such as being able to evidence future income and a strong client base. In certain situations, you may need to secure a guarantor or secure your existing assets against the value of part or all of the loan.
How Do Lenders Calculate Mortgages for Self-Employed Borrowers?
Much like loans for regularly employed borrowers, lenders generally look at the value of the property being purchased, and the total income from your self-employment activity.
This is calculated differently depending on whether you are a sole trader/member of a partnership, or you hold a stake in/are the director of a limited company.
If you are a sole trader or member of a partnership, lenders will generally calculate the terms of the mortgage based on your net profit. In other words, the amount leftover from your revenue once you have accounted for business expenses and before tax.
If you are involved in a limited company, then the terms can be based on your salary and dividends or salary and net profit from the company in question. This would also be extended to other companies you are involved in, if you have interests in more than one.
Will I Be Subject to Worse Terms as a Self-Employed Borrower
The short answer – no. Lenders and mortgage brokers don’t discriminate against those who are self-employed once they have confirmed a reliable source of income.
The interest rate on your mortgage is mainly subject to the provider you select. The mortgage market is vast, with hundreds of lenders and thousands of mortgage deals available. It’s essential to shop around to find a deal that best fits your needs. If you’re not sure where to start or don’t have the spare time, then a professional mortgage broker can help you secure a competitive mortgage deal.
What Do I Need to Prepare Before Applying for a Mortgage?
The following steps should help you while taking the initial jump into the process:
Get in touch with a mortgage adviser: They will talk through your options, helping you set a budget and determine your borrowing power. This will be based on things such as disposable income, deposit, credit score etc
Finalise your accountant or tax calculations: While many self-employed individuals already use the services of an accountant, and while not essential, lenders will usually require that accounts are compiled by a registered accountant
Prepare your paperwork: The specifics of what is required will vary depending on your personal circumstances. However, most mortgage lenders will want to see the following documents;
- ID (Passport/Driving License)
- Proof of Address
- Limited Company Accounts
- Personal Tax Returns
- Contracts/Proof of Income
- P60’s/Payslips (For those with regular income also)
- Evidence of Deposit
Apply for a decision in principle: Once your mortgage adviser is happy with your documentation and circumstances, they can apply for a decision in principle. This will allow you to make an offer on a property and get the house taken off the market. Estate agents will usually want to see the decision in principle, proof of deposit and ID in order to do this.
Find a property: The best bit, go house hunting. Find a property and make an offer, if this is accepted then the property can be taken off the market.
Apply for the mortgage: Your adviser will apply for the mortgage on your behalf sending evidence and documentation to the lender and taking you through the detail of the mortgage. At the same time, you will need to instruct a solicitor which your adviser can normally help with.
Protection: It’s important to talk to your mortgage adviser about protecting your home and family should the worst happen. There are a number of affordable insurance options available that provide monthly lump-sum payments in the event of serious illness, injury or death.
Obtaining a mortgage if you are self-employed doesn’t need to be a complicated process. Providing you can show evidence of your income and present the correct paperwork then finding a suitable mortgage deal should be straightforward.
Working with a mortgage broker can however be a big time saver. Mortgage brokers have a detailed knowledge of the market and have access to deals that are not always open to the general public. They will also liaise with the mortgage lender and complete the necessary paperwork on your behalf.